Network Rail reclassified as public body
Network Rail is to be reclassified as a central government body (in UK National Accounts and Public Sector Finances) with effect from 1 September 2014.
The decision was taken by the ONS (Office for National Statistics) following the imposition of new and more stringent guidance tests. Network Rail has been classified as a ‘not for profit institution’ (NPI) since its incorporation in 2002 (and its acquisition of Railtrack for £500m in the same year).
The move follows one of the bi-ennial dialogue visits to the UK by EU Eurostat officials under the Maastricht Excessive Deficit Procedure (EDP).
EU member states are obliged by law to compile specified statistical returns on the basis of European System of Accounts (ESA). The latest version, ESA10 (compiled in 2010) updates the previous 1995 rules (ESA95). ESA10 adds new guidance in two areas: (1) NR’s NPI status; and (2) ‘the market test’.
On the first point, ONS looked at a number of different factors and concluded that the DfT/Treasury guarantee of National Rail debt placed it within the public sector. ONS also found the government incurred additional risk through: (a) its statutory obligation to intervene in the event of Network Rail’s collapse; and (b) the absence of any other shareholders to share the financial risk.
On the second point (the market test), the changing of the rules to include total borrowing costs (as well as other additional charges not originally included in the ‘old’ market tests), meant that it no longer met the ‘new’ one. The addition of these additional costs has pushed NR over the 50% threshold, with more than half of its revenue stream coming effectively from the government.
“On this basis, the new ESA10 market test indicates that the Network Rail has not been a market body since its 2004-5 financial year,” says ONS.
This ruling will come as a blow to the government. Successive administrations have subscribed to the independence of Network Rail, and long sought to keep its finances off the national books. However, the government might want to exercise greater control over NR finances in the future, not least over its burgeoning £30bn debt The Treasury obliged to guarantee.